USD weaker as Fed warns on future rate cuts. Rebounding stocks reignite carries

U.S. Dollar Trading (USD) was volatile once again on Friday triggered by comments made from the Central bank. Federal Reserve Governor Kroszner warned markets that policy makers may not look to lower borrowing costs further from the current 4.5% levels in order to weather a “rough patch” in the upcoming 12 months, despite major financial institutions having announced more than $50 billion worth of write downs in relation to sub-prime mortgages. In data news, Capital Net Flows failed to give the greenback any added support coming in well below expectations for the month of September at 26.4 billion, forecasts were at 70 billion. Production contracted over the month of October with Industrial output falling from 0.2% for the previous month (revised) to -0.5% (Forecasts: 0.1%) pushing the currency lower by 0.3% versus the Euro. The dollar was able to end the week up on a number of majors, finding relief in a market concerned with risk aversion. In U.S. share markets the NASDAQ rebounded by 18.73 points (+0.72%) whilst the Dow Jones also traded higher by 66.74 points (+0.51%). Crude oil also did well to gain on Friday up by US$1.72 a barrel to US$93.79.  

The Euro (EUR) traded higher on Friday although having lost 0.2% versus the dollar throughout the week. The Euro was supported by poor reading in US production which confirmed a decline of -0.5% in industrial activity for the month of October. In data specific news, EZ Trade Balance for the month of September came in slightly better than expectations at 3.1% (Forecast: 3.0%).  Overall the EURUSD traded with a low 1.4582 and a high of 1.4673 before closing the day at 1.4657 in the New York session. ECB president Trichet is scheduled to speak on Monday, with markets no doubt waiting in anticipation for any indication of future monetary policies adopted by the central bank.

The Japanese Yen (JPY) eased on Friday pairing some of its weekly gains following a rebound in U.S. stock prices, which gave confidence to traders looking to re-build long carry trade positions. As the Japanese Yen returned to funding high yielding currencies, the USD was able to gain 0.4% versus the currency to end the week, whilst the Euro also gained 0.3% to trade at a weekly high of 162.93. Overall the USDJPY traded with a low of 109.78 and a high of 111.34 before closing the day at 110.82 in the New York session.  

The Sterling (GBP) ended a tumultuous week for the battered currency; posting its largest weekly loss in almost two years fueled by rate cut expectations in light of slowing economic growth, possibly easing as early as next month. Against the Euro, the Sterling Pound traded at its lowest levels since June 2003 of 71.71 pence. The GBP ended the week down 1.9% versus the dollar weighed upon by risk aversion, and growing speculation of borrowing cost being cut. Overall the GBPUSD traded with a low of 2.0354 and a high of 2.0530 before closing the day at 2.0513 in the New York session.

The Australian Dollar (AUD) was buoyed by rebounding U.S. stocks which placed the high yielding currency back in favor with risk appetite speculators. Overall the AUDUSD traded with a low of 0.8818 and a high of 0.8941 before closing the day at 0.8909 in the New York session. 

Gold (XAU) stabilized despite failing to trade above key 800 levels once again. XAU was buoyed by stronger oil prices. XAU traded with a low of 785.60 and a high of 797.25.  
 
TECHNICAL COMMENTARY

Euro – 1.4670
Initial support at 1.4521 (Nov 13 low) followed by 1.4444 (Nov 5 low). Initial resistance is now located at 1.4726 (Nov 14 high) followed by 1.4753 (Nov 9 trend high).
 
Yen – 110.95
Initial support is located at 109.13 (Nov 12 low) followed by 108.99 (May 17, 2006 reaction low). Initial resistance is now at 111.76 (Nov 14 high) followed by 112.88 (Nov 8 high)
 
Pound – 2.0545
Initial support at 2.0354 (Nov 16 low) followed by 2.0243 (Oct 12 low). Initial resistance is now at 2.0618 (Nov 16 high) followed by 2.0846 (Nov 14 high)
 
Australian Dollar – 0.8970
Initial support a 0.8818 (Nov 16 low) followed by 0.8754 (Nov 13 low). Initial resistance is now at 0.9017 (Nov 15 high) followed by 0.9073 (Nov 14 high)
 
Gold – 786.80
Initial support at 783.20 (Nov 15 low) followed by 777.25 (Oct 31 low). Initial resistance is now at 818.30 (Nov 15 high) followed by 845.80 (Nov 7 trend high)